Share capital is the money raised by a company through issuing shares. The two key concepts are nominal value (the par value, typically £1 or £0.01 per share) and share premium (anything paid above nominal at issue). Issued share capital is what has actually been allotted to shareholders; paid-up capital is what they have actually paid for. The statement of capital, filed at Companies House, captures the position publicly.
This guide explains the four core concepts, share classes, how share capital appears in accounts, how to increase or reduce it, and why the structure matters to directors.
The four key concepts
Issued share capital
Issued share capital is the total nominal value of all shares allotted by the company. If the company has issued 1,000 shares of £1 each, issued share capital is £1,000.
Paid-up capital
Paid-up capital is the amount shareholders have actually paid for their shares. Most small UK companies have fully paid-up shares — the shareholder paid the full nominal value plus any premium at issue. Partly paid shares are possible: a £1 share could be issued with only £0.25 paid up, leaving £0.75 callable later.
Nominal value (par value)
The face value of each share, set at incorporation. Most UK private companies use £1 or £0.01 per share. The nominal value has limited practical significance — it does not reflect market value — but it is the legal capital amount.
Share premium
If a share is issued for more than its nominal value, the excess is share premium. A £1 share issued at £100 has £99 of share premium. Share premium is captured in the share premium account, a non-distributable reserve under Companies Act 2006 sections 610 and 611. It cannot be paid out as a dividend without a formal capital reduction.
Statement of capital
The statement of capital is a snapshot of the company’s share-capital position. It must be filed:
- At incorporation (as part of Form IN01)
- Whenever a confirmation statement is filed
- Whenever shares are allotted (alongside Form SH01)
- After share-class changes, capital reductions, and certain other events
The statement captures, for each share class:
- Total number of shares
- Aggregate nominal value
- Voting, dividend, and capital-distribution rights
- Amount paid up and amount unpaid
A clear statement of capital matters because it is the public record of who is entitled to what in the company.
Share classes
Most small UK companies have only one share class — ordinary shares — but multi-class structures are common in growth-stage companies and family businesses.
Ordinary shares
The default share class. One vote per share, equal dividend rights, equal capital rights on winding up.
Preference shares
Shares with priority over ordinary shares on dividends or capital. Common variants:
- Cumulative preference (unpaid dividends accumulate)
- Non-cumulative preference (unpaid dividends are lost)
- Participating preference (entitled to ordinary-share dividends as well)
- Convertible preference (can convert to ordinary at a defined ratio)
Investor preference shares are common in venture capital structures, often with conversion rights triggered on exit or liquidation.
Redeemable shares
Shares the company can buy back from the shareholder at a future date. Used for short-term funding structures or specific founder protections.
Non-voting / B shares (alphabet shares)
Shares with reduced voting rights, often used in family or owner-managed structures to allow income distribution without diluting control. HMRC views these structures with care, and in some cases challenges them under the settlements legislation.
For mechanics of issuing new shares including pre-emption rights, see how to issue shares in a private limited company.
How share capital appears in accounts
Share capital appears in the equity section of the balance sheet, alongside other reserves. Typical entries:
- Called-up share capital — nominal value of shares issued and paid for (or required to be paid for)
- Share premium account — amount paid above nominal at issue
- Capital redemption reserve — created when shares are redeemed or bought back
- Retained earnings — cumulative profit retained in the business
Together, these are the company’s “capital and reserves” — what is left for shareholders after liabilities.
The distinction between share capital (legally restricted) and reserves (potentially distributable) matters because dividends can only be paid out of distributable reserves. Paying a dividend out of share capital or share premium without a formal reduction process is unlawful.
Increasing share capital
Share capital increases when new shares are allotted. The mechanics:
- Authority to allot from the articles or shareholder resolution
- Pre-emption rights addressed (offered to existing holders or disapplied)
- Allotment letter or subscription agreement
- Update register of members
- File Form SH01 with Companies House within one month
The new shares are added to issued share capital at their nominal value, with any premium going to the share premium account.
Reducing share capital
Reducing share capital is more complex because it potentially returns capital to shareholders or absorbs losses. Companies Act 2006 sections 641 to 653 provide two routes:
Solvency statement route (private companies only)
For private companies, a special resolution plus a solvency statement from the directors. The directors confirm in writing that the company can pay its debts as they fall due for the next 12 months. The reduction takes effect on filing with Companies House.
This route is much faster than the court route and is the standard mechanism for small-company capital reductions.
Court route
For PLCs and any company that prefers the court process, the reduction is approved by the High Court. The court considers creditor protection and shareholder fairness.
Reasons to reduce capital include:
- Returning surplus capital to shareholders
- Absorbing accumulated losses to allow future dividends
- Restructuring before a sale or refinancing
- Cancelling treasury shares
Why share capital matters to directors
Three reasons share-capital structure matters:
Authority to allot
Authority comes from the articles or a shareholder resolution. Allotting without authority is a breach of duty and can be invalidated.
Director loans vs share issues
Funding the company by director loan (debt) or share issue (equity) has different tax and legal consequences. A director loan can be repaid tax-free; a share issue dilutes existing holders but builds equity capital. Take advice before deciding.
PSC thresholds
Persons of Significant Control thresholds are linked to share-capital structure: more than 25%, more than 50%, more than 75% of shares or voting rights. New shareholders crossing these thresholds trigger PSC notification within 14 days.
Key takeaways
- Issued share capital is total nominal value of allotted shares; paid-up is what has been paid in
- Share premium is anything paid above nominal at issue
- The statement of capital is the public record of share-capital structure
- Share classes can include ordinary, preference, redeemable, and non-voting
- Capital reductions follow the solvency-statement route (private) or court route
- Share-capital structure links to PSC thresholds and authority to allot
Frequently asked questions
What is the difference between issued and paid-up share capital? Issued capital is the total nominal value of shares allotted. Paid-up capital is the amount shareholders have actually paid for. Most small UK companies have fully-paid shares, so the two are equal.
What is share premium? The amount paid for a share above its nominal value. A £1 share issued at £100 has £99 of share premium. Share premium goes to a non-distributable share premium account and cannot be paid out as a dividend without a formal capital reduction.
Can a company have different classes of shares? Yes. Common share classes include ordinary, preference (with priority on dividends or capital), redeemable, and non-voting. Multi-class structures are common in venture capital and family business structures.
How do I reduce share capital? For a private company, by special resolution plus a solvency statement from the directors. PLCs use the court route. The reduction is filed with Companies House and takes effect from the filing date.
Why does share capital matter for PSC reporting? Persons of Significant Control thresholds (25%, 50%, 75% of shares or voting rights) are based on share-capital structure. Any change in shareholdings that crosses a threshold must be notified to Companies House within 14 days.
Useful resources
Companies Act 2006 — Share capital https://www.legislation.gov.uk/ukpga/2006/46/part/17
Companies House — Share capital and statement of capital https://www.gov.uk/limited-company-formation/share-capital
GOV.UK — Persons of Significant Control https://www.gov.uk/guidance/people-with-significant-control-pscs